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American Funds raises eyebrows in launching 3 new funds

L.A. fund giant, which continues to suffer cash outflows from its bread-and-butter stock funds, says the new bond and 'balanced' funds are an attempt to broaden its lineup and not a specific response to investors' relative loss of interest in equities.

December 01, 2010|By Tom Petruno, Los Angeles Times

Funds that face heavy redemptions can be at a disadvantage if managers are forced to sell favored securities. But Haaga said the outflows were "a dribble" compared with American's total asset base.

Even so, the firm faces the ongoing challenge of trying to hold on to longtime shareholders and lure back advisors who have stopped using American Funds.

One of those advisors is Emerson Fersch, who manages $80 million at Capital Investment Advisers in Long Beach. "I place very little new money with them anymore," Fersch said. Instead, he said he has been favoring funds that are "more flexible in what they do," as opposed to American Funds' primary focus on big-name stocks.

One hurdle American may face with its new bond funds is that, in a crowded field of fixed-income portfolios, none of its 13 existing bond portfolios has a coveted four- or five-star performance rating from Morningstar. They all have either two or three stars.

Also, the company's flagship bond portfolio, the $40-billion Bond Fund of America, has struggled in recent years. The fund gained 3.8% a year over the last five years, trailing 75% of its industry peers.

Haaga said American wouldn't veer from its strategy of patient investing for the long haul and was trying to keep its investors focused on that concept.

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